Week 15 2018 – In Review

 

Stocks recorded solid gains and reversed the previous week’s losses. Markets remained volatile, however, as investors appeared to remain focused on the turbulent political environment rather than the upcoming release of first-quarter corporate earnings reports. The Nasdaq Composite Index performed best, helped by a rally in Facebook shares as investors seemed to react favorably to Facebook CEO Mark Zuckerberg’s testimony before Congress on Tuesday and Wednesday. While tech shares performed well, energy stocks led the gains in the S&P 500 Index, helped by a rally in crude prices to their highest level since late 2014.

 

Syria Fears Grow

Concerns over growing trade tensions with China continued to weigh on sentiment, although investors appeared to grow more optimistic that a full-scale trade war involving the world’s two largest economies would be averted. Chinese President Xi Jinping provided another boost to sentiment later in the week after he repeated a vow to ease access to sectors ranging from banking to auto manufacturing and to protect intellectual property in a “new phase of opening up.”

 

Even as the trade backdrop brightened a bit, new geopolitical clouds darkened the horizon. Stocks fell sharply in early trading Tuesday, following a tweet from President Trump threatening a missile strike on Syria in response to the Assad regime’s alleged chemical attack on dissident areas the previous weekend. Investors also appeared to be unsettled by tweets from the President attacking the Mueller investigation following the FBI’s seizure of documents from his personal attorney, Michael Cohen. Stocks rallied on Thursday after the President appeared to calm tensions on both fronts, tweeting that a Syria strike might not be imminent and that he would have already fired Mueller if he were planning such an action. Finally, reports surfaced on Thursday that the President was considering having the U.S. re-enter the Trans-Pacific Partnership, a multilateral trade agreement that could offer lower trade barriers to U.S. exporters.

 

Europe

With geopolitical tensions in focus, European stock markets ended the week higher as the start of earnings season and positive economic news countered some investor reluctance about the attractiveness of equity markets. As in the U.S., investor concern about the prospects of a trade war or the ramifications of a military confrontation centered on Syria seemed to ebb as the week progressed.

 

The European STOXX 600 Index advanced around 1% for the week. Germany’s exporter-heavy DAX 30 also rose for the week, despite news that the country’s exports plunged in February, largely due to a strengthening euro. German markets were supported by news that consumer price inflation accelerated in March, and they were also lifted by a report that China’s imports increased in the latest period. The UK blue-chip benchmark, the FTSE 100 Index, rose about 1%, but the index has been underperforming its European counterparts largely due to the strong pound, which weighs on the companies that convert non-UK profits back into the sterling. News of a decline in factory output did not seem to unsettle investors. Benchmark indexes in Spain, France, and Italy also ended the week higher.

 

According to its policy minutes published this week, the European Central Bank (ECB) pointed out that a strengthening euro and an increased risk of a global trade war could detract from the economic recovery currently underway in the eurozone. Following the ECB’s warning, European markets were somewhat volatile as investors weighed the impact.

 

Japan

Haruhiko Kuroda recently started his second five-year term as the Bank of Japan’s (BoJ) governor. Kuroda’s goal when he was first appointed in March 2013 was to snuff out deflation and to achieve an annual inflation rate of 2% in two years. In what became known as the “Kuroda Bazooka,” Kuroda implemented an aggressive quantitative easing program on a much larger scale than anyone had anticipated. Deflation has been vanquished, and while the 2% inflation goal has been elusive, Japan’s economy has flourished. Gross domestic product has expanded for eight consecutive quarters through December 2017, corporate earnings are booming (setting record highs in each of the past two years), and unemployment touched a 24-year low. The central bank’s easy money policies weakened the yen and spurred stock prices to multiyear highs.

 

At a news conference following his reappointment, Kuroda said, “There is still some distance to achieving the inflation target,” which confirmed for the markets that there would be no change in the central bank’s monetary policy stance in the near term. It seems that that was the desired goal because Kuroda may be concerned that interest rates could spike if the markets suspected an end to the current policy stance. The yen strengthened in 2017 and has continued its ascent in 2018, which poses a risk for the economy. Investors are also worried about the protectionist policies of U.S. President Donald Trump, as well as the threat of trade wars. These concerns showed up in the latest Tankan survey, which revealed that large manufacturers’ sentiment turned lower for the first time in about two years—possibly a sign that economic growth is peaking after the longest period of expansion in three decades.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Almost One in Eight to Retire with NO Pension Savings

 

Nearly one in eight people retiring this year have no pension savings, new research from Prudential shows.

 

This 12 per cent includes some 10 per cent of the people surveyed by Prudential – which polled 9,896 non-retired UK adults aged 45 or more – who will either be totally or somewhat reliant on the state pension.

 

The remaining 2 per cent is accounted for by people who have no formal pension savings but who will not be reliant on the state pension because they have an inheritance or other forms of income.

 

This will leave these savers with an income of around £1,452 a year below the minimum income standard for a single pensioner, a benchmark set by the Joseph Rowntree Foundation.

 

But the number of individuals with no pension savings has been decreasing, Prudential said. This figure stood at 14 per cent in 2017 and at 23 per cent in 2008.

 

Stan Russell, retirement income expert at Prudential, said it was good news the long-term trend for the number of people retiring without a pension has decreased.

 

He said: “But there is still some distance to go and it is worrying so many people will be entirely reliant on the state pension for their income in retirement.”

 

“While the state pension is an important part of retirement income, it shouldn’t be the only part and those still in work should if at all possible be contributing to a pension and saving towards their retirement.

 

“It is never too early to start saving into a pension and even a small amount each month can make a difference and help from a professional financial adviser can be invaluable in helping plan for retirement.”

 

Women were more likely to have no retirement savings – 18 per cent would retire without a pension this year compared with 7 per cent of men, the research showed.

 

And the gap is narrowing over time, falling from 22 per cent of women with no retirement savings compared with seven per cent of men in 2016.

 

In 2008, the year Prudential’s research began, a third of women (32 per cent) were planning to retire without a pension.

 

On average, people expecting to retire this year estimated the state pension would account for more than a third of their income in retirement, Prudential said.

 

The rate of the state pension for new pensioners will rise in line with inflation by £4.80 from £159.55 to £164.35 in April.

 

Of those retiring in 2018 who do have a pension provision, two fifths (42 per cent) have the majority of their pension in a workplace final salary scheme and these are massively under-funded by most of the FTSE companies.

 

One in eight (13 per cent) have their savings in a personal pension which is not through their employer and 12 per cent have the majority in a workplace defined contribution scheme.

 

I am always happy to run through and compile a pension forecast for you, just drop me an email to syeomans@farringdongroup.com

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

Courtesy of FTAdviser

 

Market Wrap Q1 2018

 

The first quarter of 2018 has been one of the most challenging quarters for global asset markets since the 2008 Financial crisis. However, despite falling asset values in most developed and developing markets the global economic picture remains healthy with robust growth figures being reported worldwide.

 

North America

After a substantial rally in 2017, US stocks have dropped by 10% since their highs on the 26th of January; the Dow jones is down by 2,684 points. However, much of this drop can be explained by simple profit taking from last year’s bull market which was the biggest since 1987.  Bonds have also continued to underperform in the US on concerns that the US economy is overheating, and higher inflation will lead to higher rates.

Ultimately, we see the events of Quarter 1 as a positive; there was no doubt that the market had risen too much and a moderate contraction in asset prices will likely serve to release dangerous pressure from the market. The underlying economic picture remains healthy with record high employment levels. There may be a need to consider selling down in 2019 but for now, moving away from tech stocks and towards more traditional companies and shorter-dated bonds would seem to be enough of a defensive play.

Trump’s looming trade war with China may also cause concern, however we feel that it is likely to be a short spat between China and the USA which will ultimately dissipate with only minor economic impact.

 

UK

UK stocks have finished an abysmal year with the FTSE 100 dropping by 9% since a brief high on the 12th of January. This has been caused by concerns over future Brexit deal, a rising pound and concerns over future interest rate rises affecting high-quality assets. At today’s prices FTSE 100 stocks are at the same levels they were at May 2015, nearly 3 years ago.

However, with the political capital gained by the UK over the poisoning of an ex-Russian spy it seems a decent Brexit deal is increasingly possible. While we expect to see the pound rising further we may also see an uplift in key resource and financial companies that make up much of the FTSE 100.

 

Europe

As growth continues to slow and Europe continues to experience the rise of alternative political parties we expect to see European assets and the Euro under-perform.

 

Emerging Markets

The contraction in offshore US dollar liquidity will continue to pose a threat to emerging markets, especially those linked to China and Hong Kong. However, global growth remains strong and we expect to see broad-spread EM assets perform well.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Week 14 2018 In Review

 

Trade Tensions Continue to Influence Markets

The major benchmarks ended lower after another week of significant volatility. Heightened trade tensions between China and the US continued to dominate sentiment during the week. Stocks sold off sharply on Monday, following China’s announcement that it would retaliate on US aluminum and steel tariffs with $3 billion in new tariffs of its own, targeting roughly 130 U.S. products and concentrated on agricultural exports. On Tuesday, the US further upped the ante, outlining a list of $50 billion in proposed tariffs on 1,300 Chinese products, and China responded on Wednesday with its own $50 billion list of tariffs on US soybeans, cars, and aircraft.

Investor patience reached a breaking point on Thursday evening after President Trump raised the stakes even further by ordering the consideration of an additional $100 billion in tariffs on Chinese goods. Stocks futures fell in response, and on Friday morning, Chinese officials struck back—a notable departure from their delayed and guarded response to earlier U.S. tariff announcements. Commerce Ministry spokesman Gao Feng threatened a “fierce counter strike” and stated that negotiations were unlikely in the current environment. US stocks appeared to fall further in response.

Another factor that may have weighed on sentiment Friday was the Labor Department’s monthly employment summary, which showed a much smaller rise in payrolls than expected (103,000) and revised lower the previous months’ gains.

 

European Stocks End the Week Higher

European stocks weathered a volatile week as trade hostilities between the US and China prompted investor sentiment to dampen. The pan-European STOXX 600 Index ended the week higher due to a rally on Thursday that produced the biggest one-day percentage gain in nearly two years. The economic recovery in Europe continued to strengthen, according to some measures. Unemployment in the 19 countries that use the euro fell to its lowest level since December 2008, according to Eurostat. But inflation remains well below the European Central Bank’s target of just under 2%. Wage growth was also lackluster. Weak domestic demand caused German industrial production to fall 1.6% in February versus expectations that it would rise 0.2%.

 

Japanese Stocks Still down for the Year

Japanese stocks posted a modest gain for the week, with the Nikkei 225 Stock Average returning 0.53%. However, all the major Japanese market indexes remain substantially in the red for the year to date. The Nikkei is off 5.3%, the broad-based TOPIX Index is down 5.4%, and the TOPIX Small Index has declined 4.2%. The yen weakened slightly and traded on Friday at ¥107.11 per US dollar, which is about 5% stronger than the ¥112.7 per dollar level at the end of 2017.

 

Elsewhere in Markets

Brazil’s stocks rallied after Brazil’s Supreme Court refused Luiz Inacio Lula da Silva’s appeal of his corruption conviction and ordered him jailed. The move will effectively eliminate him as a contender in the country’s October presidential election.

The central bank of Brazil, which only recently emerged from recession, eased reserve requirements for the banking sector one week after it reduced its key lending rate to a record low in an effort to boost liquidity and ultimately spur growth and it should make Brazilian banks more stable. Brazilian banks had previously faced some of the highest loan-to-deposit ratios in the region, over 150% on average, but they have already turned to other funding sources. The cut in reserves will, at most, shift the funding mix toward more deposits, but the impact on actual loan origination growth will be primarily driven by the banks’ risk appetite and expected return on risk-weighted assets. Ultimately, the cut in reserve requirements eliminates a historical distortion and is good for funding stability, as deposits will become a greater percentage of the total bank funding. However, Yago doubts the change will have a meaningful impact on lending policies.

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Week 13 2018 In Review

 

US Overview

Stocks recovered a portion of the previous week’s steep losses and recorded solid gains. The week was notable for a sell-off in high valuation technology companies, however, which caused the Nasdaq Composite to lag the other benchmarks. A steep drop in Amazon caused the consumer discretionary sector to join technology and energy stocks among the week’s laggards in the Standard & Poor’s 500 Index. Defensive consumer staples stocks performed well, on the other hand, as did real estate and utilities shares, whose heavy dividends became more attractive as long-term bond yields decreased.

The week got off to a very strong start as the trade war fears that led to much of the previous week’s volatility appeared to fade somewhat. Investors were encouraged by China’s decision—for the time being, at least—not to establish retaliatory tariffs on its imports of U.S. soybeans and commercial aircraft. Reports of talks between Chinese and U.S. officials on opening the Chinese market to U.S. goods and protecting US firms’ intellectual property rights were also encouraging. Monday saw the S&P 500 Index notch its best daily gain since August 2015, but the firm’s traders noted that trading volumes were somewhat disappointing, perhaps indicating a lack of broad conviction in the rally.

Indeed, the market gave back a good portion of its gains on Tuesday with a late-day sell-off in the technology sector. The primary culprit appeared to be a report that the Trump administration was considering a crackdown on Chinese investments in US firms with technologies deemed necessary to national security. Speculation has grown that the administration is pushing back against the Chinese government’s plans to dominate emerging technologies and industries, such as artificial intelligence.

 

Europe

The leading European stock indexes regained some ground for the week but finished the month and the first quarter with losses. The UK blue chip FTSE 100 index led the way, picking up just over 2% heading into the four-day Easter weekend (European markets were closed on Good Friday and will be for Easter Monday), while the pan-European STOXX 600, German DAX, and French CAC 40 each added more than 1%.

 

Japan

Japanese stocks gained in the four days ended March 29, recovering some of their losses from the previous week. The Nikkei 225 Stock Average climbed 2.6% in the four trading days. However, all of the major Japanese market indexes remained substantially in the red for the year to date. The Nikkei was off 7.1%, the broad-based TOPIX Index was down 6.3%, and the TOPIX Small Index had declined 5.7%. The yen strengthened and closed Thursday’s trading at ¥106.44 per U.S. dollar, which is about 5.6% stronger than the ¥112.7 per dollar level at the end of 2017.

An opinion poll conducted by Nikkei/TV Tokyo showed that support for the cabinet of Prime Minister Shinzo Abe plunged by the largest monthly amount since Abe became prime minister in late 2012. The government has become entangled in a scandal related to the finance ministry altering documents related to the sale of public land to a nationalist school operator. Abe’s Liberal Democratic Party (LDP) will hold an election to select its next president by September, which will measure the prime minister’s power within the LDP.

 

China

Trade related concerns between the US and China persisted after the Trump administration announced plans to impose tariffs on $50 billion to $60 billion of Chinese imports and restrict Chinese investments in US technology companies earlier this month. The measures, which led China to promptly announce (but not yet implement) retaliatory tariffs of its own, have stoked fears of a spiraling trade war between the world’s two biggest economies.

The overall impact of the tariffs will likely fall well short of the headline $50 billion and depend on how consumers and producers respond to changing relative prices and to what extent substitutes are available. Much of the damage may result from the uncertainty resulting from possible tariffs and its impact on investment decision-making over time.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

US to Shut $11bn Offshore Voluntary Disclosure Programme

Courtesy of International Adviser

 

The disclosure scheme that allows US taxpayers hiding offshore accounts to come clean and face more lenient penalties will close in September 2018, the Internal Revenue Service (IRS) announced this week.

The IRS said it will start ramping down the offshore voluntary disclosure programme (OVDP) and end it on 28 September.

By alerting taxpayers now, the IRS hopes that those who have not taken advantage of the scheme will be motivated to act.

Acting IRS commissioner, David Kautter, said: “Taxpayers have had several years to come into compliance with US tax laws under this programme. All along, we have been clear that we would close [it] at the appropriate time, and we have reached that point.”

The planned end of the programme also reflects advances in the IRS’s oversight of taxpayers’ assets. This includes the foreign account tax compliance act (Fatca), advances in third-party reporting and increased awareness of US taxpayers of their offshore tax and reporting obligations.

“Those who still wish to come forward have time to do so,” Kautter added.

 

56,000 taxpayers

The OVDP has netted $11.1bn (£8bn, €9bn) for the IRS since it was launched in 2009.

More than 56,000 taxpayers have used one of the programmes to pay back-taxes, interest and penalties.

The number of voluntary disclosures peaked in 2011, when around 18,000 people came forward. That number has steadily declined over the years, with only 600 taxpayers coming forward in 2017.

 

Enforcement

The IRS was quick to add that it will continue to use other tools in its arsenal to combat offshore tax avoidance.

These include taxpayer education, whistleblower leads, civil examinations and criminal prosecution.

Since 2009, the IRS Criminal Investigation unit has indicted 1,545 taxpayers on criminal violations related to international activities – resulting in 671 taxpayers indicted on international criminal tax violations.

Don Fort, chief of the Criminal Investigation unit, said: “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.

“Stopping offshore tax noncompliance remains a top priority of the IRS.”

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286